March 21, 2009Doug Hadden
This is section 2.5 of a series of blog entries creating a Government IFMIS Technology Evaluation Guide. This includes information to assist in evaluating IFMIS options and the technology requirements for FreeBalance IFMIS implementations. These series will be combined with feedback to produce a comprehensive Technology Evaluation Guide to be published on our web site.
Governments are modernizing public financial management processes. Virtually all governments. Everywhere.
Modernization and reform is not limited to emerging countries. G7 countries are in the process of modernization. Some recent initiatives include:
- Full accrual accounting
- Performance planning
- Standardized reporting, including XML data
- Citizen-centric reporting
- Audit to improve results
- Transparency reporting on procurement, public servant expenses
- Exposing data for mashing up
- Improved budget oversight
- Accountability frameworks
- Shared services and standardized processes
- Program outcome assessment
- Multi-year budgeting
- Single face of government for life events
- Open government initiatives led by sponsor at the Cabinet level
- E-Procurement and E-Recruitment
- Participatory budgeting
Government objectives change. This spurs the need for reform. Public Financial Management (PFM) plays a critical role in reform. The Integrated Financial Management Information System (IFMIS) is software that assists civil servants to execute the PFM reform. Technology consisting of computers, networks, printers, databases and web browsers enable the IFMIS.
Modernization and the Private Sector
The private sector has best practices. Government has good practices. Improving practices.
Large private sector companies combine Enterprise Resource Planning (ERP) software with Business Process Re-engineering (BPR). These companies analyze the demand and supply sides of their business. They develop just-in-time inventory methods. Logistics and manufacturing are automated. When done properly, the ERP implementation improves efficiency, reduces costs, and increases revenue. This benefit comes from combining the process analysis and building competitive differentiation and best practices into the ERP software.
Then the company “tweaks” the software. Minor improvements or leveraging new features.
The Journey of Government Reform
Government reform means that the IFMIS is never a destination. It is a journey.
Public Financial Management (PFM) needs to progressively adapt to support government policy changes. Country macro-economic situations change. International standards are updated. Decision-making is decentralized.
The government IFMIS must be able to adapt to three main dimensions of modernization:
- Modules: governments extend automated functionality from core expenditure control and taxation systems to procurement, civil service capacity building, transparency portals and other functions.
- Modernization: governments extend the capabilities of existing modules such as advancing to accrual accounting or developing talent management plans.
- De-centralization: governments de-centralize functionality and decision-making to line ministries and sub-national government.
Country Context Paths
There is not set roadmap for reform. Reform is delivered in phases. The most important guideline is that reform should follow what is important in the country context. There are some general sequencing principles and typical phases. There are few, if any, acknowledged “best practices”.
Government modernization and reform can significantly affect the configuration of existing financial systems. For example, the chart of accounts, that forms the core of any financial system can undergo comprehensive changes:
- Budget management reform like MTEF often requires adding a performance segment
- Program budgeting to enable focusing on priorities often requires adding a program or project segment
- Accrual accounting requires adding many new accounts including contingent assets and liabilities
- Automated budget execution requires a single classification for budget and accounting
- International standards, like the IMF Government Financial Statistics, often requires introducing economic classifications
- Activity-based costing requires detailed activity codes
- Civil service transparency requires ensuring that the structure includes responsibility centres and that certain expense types from the Civil Service Management system are passed to the General Ledger in details
Technology is Not Modernization
Innovation in technology can assist governments to modernize. But, the most modern technology may not meet government needs. Many software vendors advocate the potential of software technology. This potential – what the software could do, at some point in the future – is marketed as modernization. It can become very difficult to connect this potential with the actual need for modernization in government.
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